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HAPPY DACK TRADING CO. v. AGRO-INDUSTRIES

December 12, 1984

HAPPY DACK TRADING COMPANY, LIMITED and MAIN FAIR TRADING COMPANY, LIMITED, Plaintiffs, against AGRO-INDUSTRIES, INC., MAYER ROOZ and JOSHUA STERNHELL, Defendants; AGRO-INDUSTRIES, INC., MAYER ROOZ and JOSHUA STERNHELL, Third-Party Plaintiffs, against CHONG KING FAN, KENNETH S. K. LI and EDWARD WU, Third-Party Defendants.


The opinion of the court was delivered by: CARTER

CARTER, District Judge

This is a motion by plaintiffs for summary judgment in a breach of contract action, and for dismissal of defendants' RICO counterclaim.

 These are the facts, according to plaintiffs:

 Between July and November, 1982, plaintiff Main Fair Trading Company, Ltd. ("Main Fair"), a Hong Kong trading company, entered into six contracts with two trading agencies of the People's Republic of China requiring Main Fair to provide the People's Republic with two types of low-density polyethylene resin manufactured by ARCO Polymers, Inc. ("ARCO"), specifically, 14,000 metric tons of the resin known as ARCO 2020F and 3,000 metric tons of the resin known as ARCO 1000F. *fn1"

 Each time Main Fair entered into a contract with the People's Republic, plaintiff Happy Dack Trading Company, Ltd. ("Happy Dack") another Hong Kong trading company and Main Fair's joint venture partner, entered into a corresponding contract with defendant Agro-Industries, Inc. ("Argo"), a New York export-import company wholly owned by defendants Mayer Rooz and Joshua Sternhell, under which Argo agreed to supply Happy Dack with the resin that Main Fair would sell to the People's Republic. Between July and November, 1982, Argo and Happy Dack entered into five *fn2" agreements by telex, stating that Agro would sell Happy Dack 14,000 metric tons of ARCO 2020F and 3,000 metric tons of ARCO 1000F for shipment to the People's Republic. *fn3" These telexes also state that payment to Agro under each agreement was to be made by drawings under an irrevocable letter of credit opened by Main Fair in Agro's favor, confirmed by a bank in New York; that the resin would be shipped directly to the People's Republic in five-ply paper bags with a one-ply polyethylene liner; that each shipping bag would be marked with the number of the contract between Main Fair and the People's Republic to which the shipment related; and that for each shipment Agro would supply a certificate of quality, quantity and weight issued by ARCO.

 On November 30, 1982, representatives of Happy Dack, Main Fair and Agro met in Agro's offices in New York and executed five written contracts on Agro letterhead memorializing the agreements already reached by telex.Each contract identifies the telexes on which it is based, and the terms of the contracts parallel the terms of the telexes.

 Under the first contract, Agro shipped 1,000 metric tons of resin to Shanghai and 913.544 metric tons to Dalian in late October, 1982. The next month, Agro shipped to Shanghai 2,189.82 of the 3,000 metric tons called for in the second contract. As required by the contracts, Agro delivered manufacturer's certificates of quality, quantity and weight with each shipment. The certificates, which appear to be on ARCO letterhead, purport to be ARCO's representation that the product shipped to the People's Republic was ARCO 2020F, with a uniform melt index of 2.0 and a density of 0.918.

 Agro was paid $1,044.527.12 for the amounts it shipped under the first contract and $1,393,271.26 for the amounts it shipped under the second contract, upon presentation of the required documents (including the ARCO certificates) to the New York bank which had confirmed the letters of credit.

 The shipments sent under the first contract arrived in Dalian on January 7, 1983, and in Shanghai two days later. On January 17, Agro sent Happy Dack a telex stating Agro would not be able to ship any more resin under the third, fourth or fifth contracts because ARCO had stopped manufacturing low-density polyethylene resin and had sent Agro a claim of force majeure under Agro's existing contracts with ARCO. *fn4"

 Happy Dack replied by telex that it would hold Agro to the contracts since Agro had told Happy Dack that Agro had pre-existing commitments from ARCO for the delivery of the full amount of the resin. Happy Dack also notified Agro in this telex that it had received advance work from the People's Republic that the resin already shipped did not conform to specifications.

 The first shipments of resin had been inspected shortly after they arrived in the People's Republic. Analysis showed that the resin varied substantially from the product specifications for ARCO 2020F. The Chinese inspectors found that the melt indices diverged widely even within small samples, the density was not as specified, and resin was discolored, the bags were improperly marked, and the shipments were damaged because of poor packaging. The People's Republic notified Main Fair that the resin could not be used for its intended purpose *fn5" and that they were rejecting it. Happy Dack notified Agro of the People's Republic's rejection and itself rejected the product. Agro replied by telex that Happy Dack's claims were speculative and unfounded, and warned Happy Dack to stop "harassing [Agro] with all these lies and inuendos [sic]." To date, Agro has not shipped the balance of resin due on the second contract, or any resin under the third, fourth or fifth contracts.

 After learning of the People's Republic's rejection of the resin, Kenneth Li, assistant manager of Main Fair, traveled to Beijing, Dalian, Shanghai and Xian to investigate the claims made by the Chinese inspectors. Li inspected the shipments and collected samples which he then submitted for analysis to a Hong Kong laboratory. Li's findings and the laboratory report confirmed the Chinese inspectors' findings.

 Main Fair investigated the possibility of mitigating damages by taking the off-grade resin back from the repurchasing conforming resin for delivery to the People's Republic. This alternative proved very costly, however, so Main Fair negotiated a settlement with the People's Republic under which the People's Republic agreed to keep the resin shipped and Main Fair agreed to pay the People's Republic $895,148.49 over eight months as compensation for the nonconformities.

 Plaintiffs are now suing to recover the $895,14.49 plus interest, $15,441.17 in travel and incidental expenses, and $130,800 in lost profits on the resin not delivered under ...


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